Review of the Capital Budget in Healthcare - Essay Example

"Review of the Capital Budget in Healthcare" is a perfect example of a paper on the health system.
We are always striving to improve our medical facilities and provide better health care to our customers. With this objective in mind, I propose the addition of certain facilities in our organization which can be a profitable venture for all our stakeholders.

Justification

          The healthcare industry in the U.S. is the largest in the world. It comprises of 750,000 physicians and 5,200 hospitals (themedica.com). The total healthcare expenditure in 2009 within the U.S. was $2.2 trillion. The industry is slated to grow much more like the after-effects of the recession. Pricewaterhouse Cooper’s health research institute has found out that healthcare increases its portion of GDP during recession times and medical prices have risen faster than other prices during these times. More stress is now being given to prevention rather than treatment. Hence, we need to equip ourselves with technology which helps in a patient’s preventive medication rather than treatment. The government will be increasing their medical spend and there will also be an increase in various healthcare programs and healthcare insurance coverage (economywatch.com). To utilize the growth in this sector it is important that we upgrade our facilities to ensure complete customer satisfaction.

Demographics

          By 2010 the population of the United States is slated to be 310 million. As per 2009 estimates, 12.8% of the total population of the U.S. was above the age of 65years. The life expectancy of the total population as per 2009 est. is 78.11 years and for women, it is 80.69 years. With these figures, we can estimate that in 2010 there will be approximately 39.68 million individuals above the age of 65 years who will require constant medical facilities. On average these individuals will need these facilities for around 13 years of their remaining life. The females will need more facilities for around 15 years.

          Besides the old population, the younger lot also needs medical care though not to the extent of the older population. As per 2009 est. 67% of the population was in the age group of 15-65 years. Thus in 2010, there will be appx.207 million individuals falling in this category. Of these, individuals above the age of 45 years would require slightly more medical attention more focused on preventive care, as compared to those below this age group. Specific to women problems, they are more prone to Cancer of breasts, cervix and ovaries, menopausal complication, orthopaedic problems and fibroid development after the age of 40. Thus, this group specifically requires constant medical examination every year to ensure that diseases like cancer are caught at the right stage.

          Thus we need to prepare our services for this target population which would require higher and more complicated medical facilities over the years.

Item description

Some of the items I propose for the women’s department are:

1. GE Voluson I Portable Ultrasound Machine - $42,000
2. Lunar Prodigy Advance whole body bone densitometer - $26,000
3. GE Sonographe DMR+ (plus) Mammography machine - $24,999.
4. Cooper Surgical AVM-851 J Filshie clip - $763

For the pediatric department following equipment is required:

1. Corometrics 171 Fetal Monitors (Twins) - $7,199
2. Corometrics 128Maternal Fetal Monitor - $5,299

To cater to the requirements of the Anesthesia department following equipment are required:

1. GE Dash 5000 Patient Monitor - $12,999

Other equipments required for the various other departments are:

1. GE Marquette MAC 5500 EKG Machine – New - $13000

Quantity

          Currently, all the above-mentioned equipment are needed only in a single quantity.

Suggested vendors

          Looking from the reliability and servicing point of view, for most of the items, GE has been shortlisted for high-value equipment. For others, Corometrics and Cooper have been shortlisted.

Estimated costs (absolutemed and pmedicalonline.com)

Equipment

Purchase Price $

GE Voluson I Portable Ultrasound Machine

42,000.00

Lunar Prodigy Advance whole body bone densitometer

26,000.00

GE Sonographer DMR+ (plus) Mammography machine

24,999.00

Cooper Surgical AVM-851 J Filshie clip

763.00

Corometrics 171 Fetal Monitors (Twins)

7,199.00

Corometrics 128Maternal Fetal Monitor

5,299.00

GE Dash 5000 Patient Monitor

12,999.00

GE Marquette MAC 5500 EKG Machine

13,000.00

Total

132,259.00

Training and installation costs are included in the purchase price. Training costs could be around $1000-$2000 per day if detailed training is required. Installation costs for heavier equipment can be up to $5000. Thus our total capital expenditure will be $142,259.00 assuming 5-day advanced training @ $2000 per day.

Depreciation

Depreciation has been calculated below based on MACRS. We are assuming the life of the equipment to be 10 years.

Year

Depreciation %

Depreciation Amount $

1

10.00

13,625.90

2

18.00

24,526.62

3

14.40

19,621.30

4

11.52

15,697.04

5

9.22

12,563.08

6

7.37

10,042.29

7

6.55

8,924.96

8

6.56

8,938.59

9

6.55

8,924.96

10

3.28

4,469.30

Payback period and revenues

Assuming an average charge per patient of $100 (ultrasound @ $300, bone densitometry @ $200, mammography @ $100 and others anywhere from $20-$100) for the additional facilities we can look at the following revenue generation and payback period. We are assuming an average of 5 patients for any of the additional services. We are also assuming that these additional facilities will be used for only 15 days in a month. Miscellaneous expenses have been assumed to be 25% of the revenues. We can also safely assume an 8% increase in patients and hence our revenues per year.  From the table below we can see that we will be able to recover our capital expenses in 3 years time.

Year

Revenues

Misc. Expenses

Depreciation

Net income

Accumulated Income

1

90,000.00

22500

13,625.90

53,874.10

53,874.10

2

97,200.00

24300

24,526.62

48,373.38

102,247.48

3

104,976.00

26244

19,621.30

59,110.70

161,358.18

Consequences if not purchased

          There is a great opportunity loss if this equipment is not purchased.

Alternative funding sources

          Alternative funding could be through equipment lease.

Conclusion

          In the face of health hazards caused due to our way of life, it is imperative that we prepare ourselves for the preventive as well as diagnostic medical care.